Board of Advisors Definition
Board of advisors is an informal group of people who have professional knowledge and business experience and provide advice/suggestions, solutions to business issues to the management of the entity. It consists of expertise persons in legal, accounts & finance, human resource, sales & marketing, etc.
Functions of the Board of Advisors
- To understand the Business and Industry trends and develop the business strategy to earn income.
- Provide solutions on business issues raised, to the management of the entity.
- Provide opinions on the latest updates, how to face current challenges of the entity, market scenario, to the management of the entity.
- Provide new business ideas to the management of the entity for expansion.
- Provide knowledge of corporate governanceCorporate GovernanceCorporate governance is a set of rules or practices through which an entity is directed and controlled to increase shareholders wealth by increasing the economic value and is concerned about its relations with various entity stakeholders., internal controlInternal ControlInternal control in accounting refers to the process by which a company implements various rules, policies, or procedures to ensure the accuracy of accounting and finance information, safeguard the various assets of the business, promote accountability in the business, and prevent the occurrence of frauds in the company., and internal audit-related issues to management.
- They monitor the business ranking in the respective industry, growth with respect to the industry, etc.
- Determine and reviews the entity’s goals and policies.
- The Board of advisors should consider the benefit and interest of an entity.
- Provide the opinion from where funds to be sourced by the entity.
Board of Advisors Agreement
The board of advisors agreement is the registered formal legal agreement executed between the entity and each member separately. There are some specific and general terms and conditions such as tenure, fees, nature of services to be provided, etc. Members are not employees/directors of the entity and they don’t have any power and control over the entity.
Below are some points which should be part of advisors agreement:-
- Parties and Purpose
- Background of the company
- Terms of the services
- Professional Fees/ Remuneration and the process of reimbursement of other expenses incurredExpenses IncurredOther expenses comprise all the non-operating costs incurred for the supporting business operations. Such payments like rent, insurance and taxes have no direct connection with the mainstream business activities. for providing services to the entity.
- Confidential clause
- Date and signature of both the parties
How to Set Board of Advisors?
- An entity should prepare a policy for hiring the members of advisors on a contract basis and fixed the no. that how many numbers of members is required for the board of advisors and for which department like finance, legal, sales, marketing, etc.
- The selection should be done as per the current market scenario, challenges, the economic condition of the country, and industry analysis.
- The entity should do the market research and document the positive market feedback for the selection of the board of the advisors.
- Entity’s key persons should conduct the interviews and ask the same questions which verify the persons is okay for the board of advisors and also discuss the remuneration so that entity can take the final decision for selection and save the indirect expensesIndirect ExpensesIndirect expenses are the general costs incurred for running business operations and management in any enterprise. In simple terms, when you want to buy grocery from a supermarket, the transportation cost to get you to the supermarket and back is the indirect expenses..
- They help to resolve the business issues, provide expert opinion on the affairs of the entity ask by the management.
- Provide advice/ suggestions on how to maximize the profit and wealth of the entity.
- It plays a vital role in the growth of the entity.
Board of Advisors vs Board of Directors
|Description||Board of Advisors||Board of Directors|
|Meaning||It is an informal group of some persons who provides a professional opinion to the management of the entity.||It is a formal group of persons who provides their services to the entity.|
|Relationship||There is no direct relationship with the entity. Agreement executed on a Contractual basis. They are external persons.||The direct relationship between employer-employee relation i.e. employment basis. They are internal persons.|
|Voting Rights||No Voting Rights.||Voting rights are given to the Board of directors.|
|Remunerations||Fixed as per Agreement||Fixed as per the Appointment letter offered.|
|Selection Process||Selected by the board of directors.||Selected by the shareholders.|
|Responsibility||They provide their opinion basis of professional knowledge and experience.||They are directly responsible for the entity whatever they are doing in the course of employment.|
|Work Profile||There work is defined in the advisory agreement.||There work is defined in the appointment letter.|
- It increases the stakeholder confidence in the entity.
- Entity gets an expert opinion from the Board of advisors for consideration of new proposals/expansion.
- Increase the goodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price. and brand of the entity in the market and industry.
- They share opinions/advice/suggestions after studying the current market, competitor’s product knowledge, etc.
- Share opinions for increasing profit and wealth maximizationWealth MaximizationWealth maximization means the maximization of the shareholder’s wealth as a result of an increase in share price thereby increasing the market capitalization of the company. The share price increase is a direct function of how competitive the company is, its positioning, growth strategy, and how it generates profits. of the entity.
- It provides the only opinion with a subjectivity basis and the opinion shared by advisors can be taken for consideration or not as it depends on key persons of the entity.
- Advisors don’t have direct interest/benefit into the company so they provide the advice/suggestions basis their knowledge and experience.
- They are not liable for any loss or liability of the entity as they are not employed.
- Every entity should hire a board of advisors on a contract basis that provides their expertise opinion/advice/suggestion to the entity so that entity can manage and grow its market share and the burden can be reduced from the board of directors.
- If an entity doesn’t want to involve external persons in the affairs of the entity then they should hire such employees who have expertise in the same field so that they fulfill the requirement of the board of advisors.
This has been a guide to the Board of Advisors and its definition. Here we discuss functions, agreement of the board of advisors, and how to set it along with its differences, advantages, and disadvantages.